The Indian government on Monday formally notified the United Nations that it had terminated the Most Favored Nation (MFN) status accorded to Pakistan in 1996, a move that immediately triggered a diplomatic storm and raised the specter of deeper economic and trade tensions between the two nuclear-armed neighbors.
The notification, submitted to the World Trade Organization (WTO) and communicated to Pakistan’s High Commission in New Delhi, marks a dramatic escalation in bilateral relations following the February 14 Pulwama attack, in which a suicide bomber affiliated with the Jaish-e-Mohammed (JeM) killed 40 Indian paramilitary personnel. While New Delhi has long accused Islamabad of harboring militant groups operating against India, the MFN revocation—effectively suspending tariff concessions under the Generalized System of Preferences (GSP)—is the first time India has invoked the clause since its introduction under the WTO’s trade framework.
Pakistan’s Foreign Ministry swiftly condemned the decision as “unilateral and unjustified,” calling it a violation of international trade norms. In a statement issued Monday evening, the ministry accused India of “escalating tensions” and warned that the move would “disproportionately affect Pakistan’s export-oriented sectors, particularly textiles and agriculture.” A senior official in Islamabad, speaking on condition of anonymity, told World Today News that the government had already instructed trade bodies to prepare a formal complaint to the WTO Dispute Settlement Body, arguing that the revocation lacked substantive justification under Article XXIV of the GSP agreement.
India’s Commerce and Industry Minister, Piyush Goyal, defended the decision in a press briefing, citing “persistent cross-border terrorism” as the primary rationale. “Pakistan has failed to take credible action against terrorist groups operating from its soil,” Goyal said. “This revocation is not about trade—it is about holding Pakistan accountable for its inaction.” The ministry also clarified that the measure would not impose blanket sanctions but would instead subject Pakistani goods to standard import duties, a shift that could cost Islamabad an estimated $2 billion annually in lost trade concessions.
Economists and industry analysts warn that the fallout could extend beyond bilateral trade. Pakistan’s textile sector, which accounts for 60% of its exports, relies heavily on duty-free access to Indian markets. The All Pakistan Textile Mills Association (APTMA) has already signaled potential job losses, with estimates suggesting up to 50,000 workers in Karachi and Lahore alone could be affected. Meanwhile, Indian importers of Pakistani goods—ranging from basmati rice to surgical instruments—face immediate price hikes, though some industry groups have privately expressed relief over reduced competition from subsidized Pakistani products.
The move also introduces a new layer of complexity to India’s trade relations with other nations. Under the WTO’s rules, countries can revoke MFN status only under “exceptional circumstances,” and India’s justification—terrorism—has drawn scrutiny from allies like the United States and the European Union. A spokesperson for the U.S. State Department declined to comment on the specifics but emphasized Washington’s “longstanding concerns about cross-border terrorism in the region.” The EU’s trade commissioner, Phil Hogan, issued a statement urging both sides to “resolve disputes through dialogue,” a rare public intervention in what has been largely framed as an Indo-Pakistani dispute.
Diplomatic channels between the two countries remain frozen since the Balakot airstrikes in February, and there is no immediate indication that the MFN revocation will prompt a de-escalation. Pakistan’s Ambassador to the UN, Maleeha Lodhi, is scheduled to raise the issue at the UN Security Council’s monthly briefing on Tuesday, where she is expected to demand an emergency session. India’s Permanent Representative to the UN, Syed Akbaruddin, has not commented publicly but is understood to view the WTO complaint as a tactical maneuver to delay broader economic repercussions.
What remains unclear is whether the revocation will trigger a broader trade war. While Pakistan has threatened retaliatory measures—including potential restrictions on Indian pharmaceutical exports—a senior Indian official told World Today News that New Delhi has no plans to escalate further. “Here’s a calibrated response,” the official said. “We are not looking for a trade conflict, but Pakistan must understand that inaction on terrorism has consequences.” For now, the focus remains on the WTO’s next steps, with both sides bracing for a prolonged legal and diplomatic battle.
